State Tax Liability to Employees

Covering Over-Age Dependents

The Patient Protection and Affordable Care Act and the Health Care and Education Reconciliation Act of 2010 (PPACA) required employers who cover dependents to cover all qualifying dependents on a group health insurance plan until they turn 26 years of age. Shortly after PPACA was passed, the IRS issued Notice 2010-38, making the premiums for covering the over-age dependents a non-taxable event for Federal Income Tax purposes.

Some states have automatically conformed to the federal law, while other states have only adopted certain Internal Revenue Codes (IRC) provisions. There are some states that have not conformed at all. Additional states may be addressing the adoption of the IRC rules for over-age dependent coverage over the next several weeks and months, but the federal government does not have the authority to mandate individual states to conform to federal tax law. Consequently, in states that have not conformed to federal law, the portion of the insurance premium attributable to the nondependent child may be considered imputed income that is subject to state income tax.

Please consult your legal or tax advisor, or the department of revenue in your particular state, for any tax-related questions.

For more details or discussion regarding the state taxability for over-age dependents issue, please contact a Craford team member at your earliest convenience.

The information presented in this document reflects Craford's opinion and interpretation of the law in current form and should not be construed as legal advice. You may wish to obtain your own independent legal counsel before taking any actions which impact your health and welfare benefit plans.